Question

On December 31, 2016, the shareholders’ equity section of the balance sheet of R & L Corporation reflected the following:

Common shares (no-par value; authorized 60,000 shares, outstanding 28,000 shares)	$	280,000
Contributed surplus		12,300
Retained earnings		78,000

On February 1, 2017, the board of directors declared a 12 percent stock dividend to be issued on April 30, 2017. The market value of the shares on February 1, 2017, was $19.50 per share.

Required:
1. For comparative purposes, prepare the shareholders’ equity section of the balance sheet (a) immediately before the stock dividend and (b) immediately after the stock dividend. (Amounts to be deducted should be indicated with a minus sign.)

2. Which of the following statement(s) are true consequent upon the declaration of stock dividend? (Select all that apply)

Answer 1

Items	Before Dividend and Split	Stock Dividend	After Stock Dividend
Common Stock account	$280,000	$33,600	$313,600
Contributed Surplus	$12,300	$31,920	$44,220
Retained earnings	$78,000	-$65,520	$12,480
Total stockholders' equity	$370,300	$0	$370,300
Explanation
The stock dividend has not changed total stockholders’equity because of the stock
dividend transferred funds out of retained earnings to the common stock account,
it increased the number of shares outstanding but did not change the par value per share.